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Raghuram Rajan Cuts Repo Rate by 25 Basis Points, EMIs May Fall---02-062015

Reserve Bank Governor Raghuram Rajan on Tuesday cut the repo lending rate by 25 basis points to 7.25 per cent. The move was widely anticipated given RBI's comfort with consumer price inflation and the marked slowdown in industrial growth.

Domestic stock markets, which traded with deep cuts ahead of the policy, extended losses as a 25-basis point rate cut was factored in by the markets. The BSE Sensex fell over 400 points post the rate cut announcement.

Tuesday's repo rate cut is the third reduction in interest rates this year. Previous two repo reductions, by 25 basis points each, took place outside the policy announcement.

Commercial banks are likely to slash interest rates on home and auto loans following RBI's decision to lower repo rate.

Meanwhile, the cash reserve ratio, which is the amount of money banks have to keep with the RBI, was left unchanged at 4 per cent. The statuary liquidity ratio, another key reserve requirement, was left unchanged at 21.5 per cent.

Some economists expected the RBI to cut one of the two ratios to boost liquidity.

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